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HMRC internal manual

Residence, Domicile and Remittance Basis Manual

Remittance Basis: Exemptions: Business investment relief: Condition A - eligible holding company (s809VD(5) ITA2007)

An eligible holding company is a private limited company that;

  • is a member of an eligible trading group (see below) or,
  • is a member of a eligible group which is expected to become an eligible trading group within two years of the relevant event [see RDRM34320]

and has a 51% subsidiary which is

  • an eligible trading company [see RDRM34345]
  • also a member of the eligible group.

What is an Eligible trading group for the purposes of business investment relief?

Where the eligible holding company owns the share capital of the eligible trading company indirectly, each intermediary company in the series of companies must also be a member of the group. Section 1155 of the Corporation Tax Act 2010 applies to determine whether a company owns the share capital of a subsidiary indirectly. (s809VD(10) ITA2007)

All the companies in the group must be private limited companies for the group to be an eligible trading group. The group activities, as a whole, must be the carrying on of commercial trades. It is not necessary for all the members of the group to carry on a trade; the test is that, considering the activities of all the group members together, all or substantially all, of what the group does is carrying on commercial trades.

Whether or not carrying on a commercial trade is all or substantially all of an eligible trading group’s activities will depend on a consideration of all the relevant facts. However, where carrying on a commercial trade accounts for at least 80% of an eligible group’s total activities, the group will generally be regarded as meeting this requirement. (s809VD(5) to (10) ITA2007)

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What is an eligible group for the purposes of business investment relief?

For business investment relief purposes, a group consists of the parent company and its 51% subsidiaries. The parent company must not, itself, be a 51% subsidiary of any other company. (s809VD(6) and (7) ITA2007)

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### Example 1

The shares in holding company H Limited are all owned by Mr and Mrs Smith, making it a private limited company. H Limited owns 100% of the share capital in A Limited, B Limited and C Limited. As it is not itself a subsidiary company, and each of its subsidiaries are private limited companies, H Limited it is the parent company of an eligible group.

If the activity of C Limited is negligible, so that substantially all that the group does is carry on a commercial trade, the group will qualify as an eligible trading group. Qualifying investments could be made directly in H Limited (an eligible holding company), A Limited or B Limited (both eligible trading companies); however direct investments in C Limited would not be eligible for relief.

If the activities of C Limited were significant enough to mean that the group was not an eligible trading group. H Limited would not be an eligible holding company. However, investments could still be made directly in A Limited and B Limited if they were eligible trading companies.  
   

 

Investments in intermediate holding companies can also qualify for business investment relief, provided they are members of an eligible trading group and have at least one 51% subsidiary that is an eligible trading company.

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### Example 2

The shares in holding company D Limited are all owned by Mr and Mrs Davies making it a private limited company. D Limited owns 100% of the share capital in E Limited and X Limited, two intermediary holding companies that own 100% of F Limited and Y Limited respectively. As D Limited is not itself a subsidiary company, it is the parent company of the group.

If the activity of Y Limited is negligible compared to the activity of F Limited the group will qualify as an eligible trading group. Qualifying investments could be made directly in D Limited, E Limited or F Limited; however direct investments in X Limited or Y Limited would not be eligible for relief.

If the activities of Y Limited were significant enough to mean that the group was not an eligible trading group, D Limited would not be an eligible holding company. However, investments could still be made directly in E Limited and F Limited